Yields on 10-year Japanese bonds rise following U.S. Treasuries; shall pressurise BoJ to intervene with unlimited buying at fixed price

The Japanese government bonds slumped Thursday following a heavy sell-off in U.S. Treasuries.

The benchmark 10-year bond yield, which moves inversely to its price, rose 1 basis point to 0.040 percent, the yield on long-term 30-year note climbed 2-1/2 basis points to 0.65 percent and the yield on short-term 2-year note inched ½ basis point higher to -0.16 percent by 05:30 GMT.

Minutes from the 1 - 2 November FOMC meeting indicated that participants generally agreed that based on the relatively limited information received since the September FOMC meeting that the case for increasing the target range for the federal funds rate had continued to strengthen. Minutes indicated that labour market conditions had improved further and considered the firming in inflation and inflation compensation to be positive developments, consistent with continued progress toward the Committee's 2 percent inflation objective.

However, a number of participants expressed the view that some modest slack remained in the labour market or noted that readings on inflation compensation and inflation expectations remained low, alongside some participants who suggested that current conditions did not point to an immediate need to tighten policy or that some further evidence of continued progress toward the Committee's objectives would provide greater support for policy firming.

Nevertheless, most participants expressed a view that it could well become appropriate to raise the target range for the federal funds rate relatively soon as some participants noted that recent Committee communications were consistent with an increase in the target range for the federal funds rate in the near term or argued that to preserve credibility, such an increase should occur at the next meeting.

The Bank of Japan is highly expected to intervene in the fixed income market once again by buying unlimited bonds at fixed price if yields increase above the BoJ’s target level of zero percent following surge in the United States Treasury prices.

Last week, the BoJ offered to buy an unlimited amount of JGBs with 1 to 3 years of maturity at a yield of 0.020 percent above the previous close. It also offered to purchase an unlimited amount of JGBs with 3 to 5 years to maturity at 0.019 percent above the previous close.

Also, the central bank Governor Haruhiko Kuroda confirmed in his recent speech that the central bank will continue to intervene in the fixed income market to keep the JGB yields at the target level of zero percent.

Meanwhile, the benchmark Nikkei 225 traded up 1.09 percent at 18,359.50 and the broader Topix index rose 0.91 percent to 1,460.67 points.

While at 05:00 GMT, the FxWirePro's Hourly Japanese Yen Strength Index stood neutral at -69.67 (lower than -75 represents bearish trend).